Oct. 22 (Bloomberg) -- In its search for American-built F-5
fighter jet parts, Iran turned to a father-son company operating
out of a yellow stucco cottage on a country road on Ireland’s
northwest coast.

Tom and Sean McGuinn are accused in a U.S. indictment of
conspiracy, trade violations and making false statements to
illegally export items with military uses beginning in 2005.
Over the past decade, the McGuinns shipped more than $120
million in U.S.-made equipment to the Islamic Republic, Clark
Settles, a U.S. Immigration and Customs Enforcement official,
said in an interview.

They succeeded through simple deceptions and persistence,
according to court and government documents and interviews with
U.S. officials and people who did business with their company,
Mac Aviation Ltd. They are still free in Ireland.

Their tale illustrates how Iran is leaning on a network of
people often operating out of houses or storefronts to evade a
U.S. embargo and obtain parts with military uses, American
officials said. More than 100 defendants have been charged with
illegally exporting such items to the Middle Eastern country
since the U.S. began a crackdown in 2007, according to the
Justice Department.

Even though the U.S. doesn’t know the total dollar value of
illegal shipments to Iran, the smugglers are critical to the
country’s military and threaten American security, officials
said.

“What Mac Aviation did represents a typical scenario,
something that we see on a regular basis,” said Settles, who
oversees Immigration and Customs Enforcement’s counter-proliferation investigations unit. “Middlemen such as the
McGuinns pose a clear threat to national security.”

1970s Aircraft

Iran depends on the supplies to maintain its American-made
1970s military aircraft, remnants from an era of good relations
between the countries. The U.S. restricted trade with Iran and
imposed other sanctions, saying the country is sponsoring
terrorism, pursuing a nuclear arms capability and violating
human rights.

The country could exploit a network of traders operating in
similar ways to ratchet up its military threat, said Gary
Milhollin, director of the Wisconsin Project on Nuclear Arms
Control in Washington, which works to stem the spread of
unconventional weapons.

‘100 Percent False’

“Today they may be trying to get military parts,” he
said. “Tomorrow they may be trying to get parts that are very
consequential for nuclear weapons or long range missiles.”

Tom McGuinn, 73, said the U.S. allegations against him are
“100 percent false” and that his business does not deal in
military gear.

“We’re not involved and never have been,” he said,
reached by phone. “We’re only involved in civil air and
aviation.” He declined to answer additional questions.

Mac Aviation may have earned as much as 100 percent profit
on some transactions, according to law enforcement officials who
spoke on condition of anonymity because the case is continuing.
There’s no indication the company supplied terrorist groups
directly, they said.

Attracted by Profit

Alleged middlemen such as the McGuinns number in the
“dozens and dozens” and often are attracted by profits far
greater than what they could earn legally, said Steven Pelak,
principal deputy chief of the Justice Department’s
counterespionage section.

In July, a man in southern California, Jirair Avanessian,
pleaded guilty to conspiring to export equipment with nuclear
applications to Iran. In June, Omid Khalili, an Iranian
national, pleaded guilty in Alabama to trying to illegally
export fighter jet parts from the U.S. to Iran.

U.S. convictions show that suppliers managed to continue
shipping restricted products to countries, including Iran, even
with the U.S.’s war on terror in the aftermath of the Sept. 11,
2001, attacks in the U.S.

In the case of Tom McGuinn, the U.S. failed to take steps
that might have restricted future shipments after an earlier
conviction.

McGuinn, who law enforcement officials said served in the
Irish military, was indicted in 1994 on charges of conspiracy
and trying to send night vision goggles to Iran. He pleaded
guilty in Miami to a single export violation two years later.

Supplying Helicopter Engines

His company supplied Iran with equipment, including
helicopter engines and jet engine parts, according to a 2008
indictment of the company and the McGuinns in U.S. District
Court in Washington. Two new counts were added to those charges
in July.

Mac Aviation lied about the contents and destinations of
packages and concealed the identities of buyers, the indictment
said. When any one company started asking too many questions,
Mac Aviation shifted tactics. It shipped goods through at least
six countries, including Belgium, Malaysia and the United Arab
Emirates, according to court records.

The McGuinns face 27 criminal counts of providing to Iran
both military and “dual use” items, which have both military
and commercial applications. American regulations ban even those
operating overseas from arranging shipments from the U.S. to
Iran without approval.

Request to Extradite

The U.S. is trying to extradite the McGuinns from Ireland,
according to law enforcement officials who spoke on condition of
anonymity. If convicted, they could spend the rest of their
lives in prison. Justice officials in the U.S. and Ireland would
not comment on the status of the extradition request.

Irish authorities this year settled a civil case against
Mac Aviation, according to law enforcement officials who spoke
on condition of anonymity. The company agreed to pay more than 4
million euros ($5.6 million) in penalties and back taxes. An
Irish high court justice determined that a “substantial
portion” of Mac Aviation’s business involved deals with Iran,
according to a judgment. An Irish police spokesman declined to
comment.

The company’s shipments were “extremely important
components for the Iranian military’s operational readiness,”
Settles said. Mac Aviation’s sales of military and dual-use
items rank among the largest uncovered by his department, he
said.

Laser Cutting Machines

While the Irish company dealt mostly in aviation parts, it
also attempted to obtain for Iran laser cutting machines, which
can be used for missile development, and chemical weapon
detection kits, according to a U.S. law enforcement official
familiar with the case who spoke on condition of anonymity
because the case is continuing.

Iran says its nuclear program is for civilian use only.
Mohammad Reza Bak Sahraei, a spokesman for Iran’s mission to the
United Nations, didn’t respond to requests for comment.

In County Sligo’s village of Drumcliffe, Mac Aviation has
operated for years from the red-shuttered cottage tucked into an
iconic Irish landscape: tree-covered slopes and fields of
grazing sheep, not far from the gravesite of poet William Butler
Yeats.

There is no company sign on the sliding glass entryway or
in the gravel parking area out front. Despite this seemingly low
profile, Mac Aviation has attracted interest from U.S.
investigators off-and-on since at least the early 1990s.

U.S. Customs agents began investigating Tom McGuinn in mid-1992 after getting a tip about his efforts to buy 200 night
vision goggles and parts for F-4 fighter planes and Bell
helicopters, according to Customs investigative records obtained
under the Freedom of Information Act.

Posing as Brokers

Over the next four years, agents pursued McGuinn. After Mac
Aviation arranged a shipment to Tehran of four U.S.-made goggles
from a Canadian supplier, authorities intercepted the package in
London, according to court papers.

Undercover agents working as import-export brokers lured
McGuinn to a meeting in Miami in March 1994, where he
acknowledged the seized goggles had been destined for Iran,
according to the 1994 indictment. He was carrying a $1.93
million letter of credit for Mac Aviation from a bank controlled
by Iran, according to court records.

Authorities arrested him, and a search of his hotel room
turned up currency from six countries, including Iran, Libya and
Singapore, according to court records. After the indictment on
charges of conspiracy and attempted illegal exports of goggles,
he spent almost three months in jail.

Reaching a Deal

After McGuinn reached a deal with the government and
pleaded guilty in 1996 to an export violation, he was sentenced
to time served -- far less than the five-year minimum the
prosecutor had predicted early on, according to court records.
Wilfredo Fernandez, the prosecutor, said he could not recall
what led to the deal.

It would be 2005 before immigration and customs
investigated Mac Aviation anew, according to law enforcement
officials who spoke on condition of anonymity. Investigators now
believe Tom McGuinn resumed shipping items to Iran soon after
pleading guilty in 1996, according to the officials.

With the guilty plea, the U.S. State Department and
Commerce Department each could have taken steps to help prevent
future shipments by Mac Aviation, said Robert Clifton Burns, an
international trade lawyer with Bryan Cave LLP in Washington,
who isn’t involved in the case.

‘A Screw Up’

“It was a screw up,” said David Albright, president of
the Institute for Science and International Security in
Washington, which tracks nuclear proliferation. “It’s
frustrating. You’d expect the government to coordinate.”

The State Department in 1998 added Tom McGuinn to a list of
those barred from shipping military items. It never added his
company. Jason Greer, a department spokesman, said officials
left it off the list because the company wasn’t convicted. Mac
Aviation was placed on a non-public State Department watch list
and any license application involving the company likely would
have been denied, Greer said.

The Commerce Department, which regulates dual-use items,
was never informed that McGuinn entered a guilty plea, so it put
neither Mac Aviation nor McGuinn on its roll of those banned
from exports of any items originating from the U.S., according
to Kevin Griffis, a spokesman for the department.

The department now receives regular accounts of
convictions, he said.

Revamping Oversight

The administration of President Barack Obama plans to
streamline communications among agencies through a coordination
center. A new, tiered system for licensing items would tighten
controls on items critical to defense interests, and loosen
controls on less sensitive goods.

Stopping international arms dealing will take more than
tougher enforcement and more government resources and
coordination, said Milhollin of the Wisconsin Project.
Businesses must be more proactive in reporting suspicious buyers
and forego sales to suspect clients, he said.

Mac Aviation was relentless in getting around hurdles that
might have blocked its shipments and it often left unpaid bills,
according to people who did business with the company.

Tom Brizes, at the time a vice president of Commerce
Overseas Corp., an aviation supplier then-based in Tustin,
California, said he tried to block a 2005 order by Mac Aviation
for three F-5 canopy panels, essentially the windshields for
fighter jets.

Shifting Explanations

First Mac Aviation wouldn’t disclose the panels’
destination, Brizes said. Then it claimed they were going to
Nigeria, which Brizes knew didn’t use F-5s, he said.

“He talked in circles and made stuff up,” Brizes said of
his conversations with Tom McGuinn. “If you’re having a
conversation saying the weather was 60 degrees, he would explain
how his boat works.”

Then Mac Aviation insisted that the parts be shipped
overseas without the required export license for military goods.
Brizes said he sent several dozen e-mails over six months and
repeatedly refused the company’s request.

“Some of my e-mails said what you’re doing is breaking the
law and we’re not going to do it,” Brizes said. “I put it in
bold red and underlined it.”

So Mac Aviation devised a new plan to get the equipment out
of the U.S. At the company’s direction, ABL Freight, in Compton,
California, arranged to pick up the panels, said Maria Free, a
former Commerce Oversees employee who oversaw shipping
documents. Sending them domestically eliminated the need for a
license.

Releasing Panels

“Finally they did something that covered our butts,” said
Free. “We let go of the reins.”

At ABL, someone at Mac Aviation’s request removed the
Commerce Overseas invoices and replaced them with paperwork
identifying the contents simply as “plastic panels,” and the
destination as Malaysia, according to the recent indictment. A
code listed for the shipment indicated it required no license,
further reducing its chances of being caught by inspectors,
according to the U.S. law enforcement officials who spoke on
condition of anonymity.

Garcia said he didn’t know the package contained F-5 parts
and just included the documents Mac Aviation provided.

“We’re just simple people trying to do the business and
that’s it,” he said.

ABL shipped the panels to Kuala Lumpur in February 2006,
and from there they were sent to Tehran, according to the
indictment. McGuinn quoted his contacts in Iran a price of
$86,400, about double what he paid, the indictment said.

Finding Electronics

In another instance, Pyka Aerospace Inc., of San Antonio,
had eliminated dozens of jobs in 2006 when Tom McGuinn called.
He negotiated for $785,000 in electronics equipment for six
Boeing 707s, said Stu Perl, then the company’s president.

Perl said he asked the usual questions: Who were the
electronics for? Where would the planes operate? What were the
plane tail numbers? At first, McGuinn wouldn’t answer, Perl
said. Then McGuinn told them the planes would operate in Europe,
or the Far East, Perl recalled. Still later, the answer was
Pakistan.

“What went through my mind is: Can I trust this guy?” Perl
said.

Shipped to Iran

Yet the shipment met all U.S. requirements, and Perl had no
reason to think the items would be illegally diverted from
Malaysia, where he sent them, he said.

The Pyka goods ultimately went to Iran, according to U.S.
law enforcement officials who spoke on condition of anonymity.
Perl said he had no inkling until he was contacted much later
about the Mac Aviation investigation.

Mac Aviation also targeted larger military contractors
directly, using the same tactics on London-based Rolls-Royce
Group Plc, Europe’s largest jet-engine maker.

Engines to Iran

In 2006 and 2007, McGuinn’s company was negotiating deals
worth more than $4 million to purchase 17 helicopter engines
from Rolls-Royce in the U.S., according to the indictment. All
but two of the dual-use engines reached Iran, according to the
Justice Department, and some went to a company the U.S. says is
controlled by Iran’s defense ministry.

Rolls-Royce for months tried to get answers about Mac
Aviation’s plans for the engines after shipping the first six,
according to the indictment. In e-mails to Rolls-Royce described
in the indictment, Mac Aviation gave vague information and said
details would be unavailable for months.

At an airshow in Paris, a Rolls-Royce representative
challenged Tom and Sean McGuinn, telling them the manufacturer
wouldn’t sell them more until it got answers.

When Mac Aviation finally answered, it said in one e-mail
that engines would be sold or rented in countries including
Malaysia, Indonesia and Nigeria; another e-mail said some might
be sold in Singapore and Libya, but wouldn’t go to a military
organization or government, the indictment said.

Resuming Sales

Rolls-Royce eventually resumed sales and McGuinn’s company
crossed another hurdle, according to the indictment. The U.S.
blocked shipment of the final two engines.

Mia K. Walton, a spokeswoman for Rolls-Royce, said the
company has been cooperating with the government since 2007 and
is not a target of the investigation. She declined to comment
further, citing the continuing case.

Rolls-Royce should have been more suspicious, said
Albright, of the Institute for Science and International
Security.

“There were numerous red flags,” he said. “They were
careless.”

Even with U.S. trade restrictions, and global pressure
applied by the United Nations, McGuinn found avenues through
other countries that did little to impede him. As laws in
countries became stricter, he would once again shift strategy.

Shipping Through Brussels

Jozef Ransbeek, an owner of Red\Line International
Forwarders in Brussels, inherited Mac Aviation as a customer in
2006 after taking over another shipping company and its
warehouse by the Belgian capital’s airport.

Early on, Tom McGuinn told him he was shipping civilian
aircraft parts to Iran, Ransbeek said. Ransbeek handled at least
11 Iran shipments for the company, with most going first to
Dubai or Malaysia.

Ransbeek wasn’t suspicious or concerned at first. “As long
as the Customs say this is OK, then we are clean,” he said.

Shipping to Belgium may have triggered fewer suspicions
from U.S. officials than packages going to the U.A.E. or
Malaysia, said Michael Swangard, a London-based international
trade lawyer at Clyde & Co., who isn’t involved in the case.

In 2007, the U.A.E. approved an export control law that
helped crack down on middlemen using the country as a shipping
point to Iran. Malaysia approved a law earlier this year giving
it powers to limit exports of arms and other sensitive items.

Switching to Malaysia

Around the time of the U.A.E. crackdown, McGuinn told
Ransbeek to stop shipping through Dubai and send directly to
Malaysia, Ransbeek said. That gave Ransbeek pause.

“You start thinking a little deeper and you say this is
not normal anymore,” he said.

When Ransbeek questioned the arrangement, he said McGuinn
threatened to pull his business. Customs in Brussels later told
him to ship no more items for Mac Aviation, he said.

In Malaysia, in Southeast Asia, the shipping process at the
time involved even fewer hurdles.

KS Global Logistics in the capital of Kuala Lumpur just
followed Mac Aviation’s shipping instructions, said company
manager Samantha Chow Poh Kuan. “We’re just the forwarders,”
she said.

The Irish company’s shipments were labeled as spare parts
or documents, Chow said.

Soon after they began working together, Tom McGuinn
proposed a different arrangement that may have further obscured
his tracks. Over coffee at Kuala Lumpur’s luxury Hotel Nikko,
McGuinn said he wanted her to help him take over a Malaysian
company and make it his shipping destination, Chow said.

They settled on Penerbit Kemas Sdn., a book distributor
sandwiched amid a row of mom-and-pop storefront shops in a
residential area southwest of Kuala Lumpur’s bustling streets.

Chow said she suspected no wrongdoing until she received a
call from a U.S. Homeland Security Department investigator in
2007 or 2008. Chow agreed to provide information, and she also
alerted McGuinn, she said.

Then, she said, she cut ties to Mac Aviation. Chow said the
company still owes her money.